Traderbill's Financial Markets Weblog

…that would be Goldman Sachs….now the shareholders are up in arms and demanding the bonus set aside be reduced…like Goldman has lowered earnings estimates. TB warned how we were rallying financial stocks with total disregard for DILUTION!!! Goldman has it in spades and seemed to think they could just show an increase in earnings and fool those dummies who buy their stock and provide OPM for the pleasure of the elitists who run the firm. May they fall and land on their royal asses!

Poor old Buffett stuck out his neck defending this group of greedy bastards and even said one’s ethics are taught in the home…not in the business school which TB guesses means that it is not their problem. Yesterday, TB read of the homespun values the Goldman boys must have learned at home. Blankfein’s dad was a postal worker….so do you think he learned greed from him? Doubtful. No, greed breeds on Wall Street where most were NOT born with a silver spoon in their mouths…not like the old days…they are street-fighters who got lucky…not that they didn’t work for it but they have a tota lack of respect for average people…like postal workers!

Buffett is now borrowing $8 billion for the BNI buyout an turning to JPMorgan and his favorite holding Wells Fargo (by the way you heard he added to his postion…but that was back in the third quarter he bought an additiional nearly 7 million shares…Fidelity, the number two holder sold nearly a like amount…hmmmm. Wonder if Goldman arranged the loans so he could let them earn a fee too?

Yesterday’s grilling of Geithner was brutal and this time he fought back in spades…this is just not done…they are there to preen for their constituency not to be upbraided by Tiny Tim or anyone else sitting in the docket. As tough as the questioning was…especially on AIG…they didn’t hit the crux of the problem…why did the Fed listen to Goldman (or the Treasury for that matter) when UBS tried to offer to take LESS THAN 100 cents on the dollar for their defaulted credit default swaps? Idiots!

Today is options expiry and while it is a minor one…next month is the last quadruple witching of the year…the pattern is more typical than we have seen of late: rally on Mon/Tues of the week then take it down…and Globex futures are down (DOW -64; SPX -6.70; NDQ -8.80). Global markets are also down: Europe -0.6%; Japan -0.5%; Hang Seng -0.8% (Shanhai -0.4%; Shenzhen +0.5%); Korea unched; India UP 1.4%.

It seems all of our government and Fed officials are incapable of spotting a bubble but Bill Gross is: it is China where he sees declining exports to U.S. making them in a bubble and subject to a steep correction. That cannot be good for global markets…not that India however was up overnight!

The Dollar is rallying overnight and now 75.88 – which is smack on the 40 day, take that out and Gold, which hit a new all-time high of $1154 on Wednesday and is now $1139.60 -$2.30 and VERY vulnerable. Crude is $76.74 -.72…how did they ever push it to $80 with the largest number of tankers in a decaded sitting offshore waiting for higher prices…don’t they know about cameras???

Both 1 month and 3 month Libor are at new record lows (0.235% and 0.362% respectively), look at the T-Bills too: 1 month 0.02%; 3 month 0.01%; 6 month 0.12%…that will do wonders for your money market fund! Bonds are off about 3/8 on the long end. It’s all about the dollar

Also, the Fed is focusing on capital adequacy for the banking system as being of primary importance! Another headline story pushes back the housing recovery to 2010 (is that all???), stating it is on ‘life support. So let’s take a look at the markets overnight and yesterday

TB warned you and said the S&P 500 would NOT take out 1121 – the 50% retracement of the entire sell-off. Nope and yesterday it closed BELOW 1100 – 1094 to be exact! Not a good sign and it and other indices are back to levels of November 6-7…gee we wiped out that faux rally on no volume. Oh and what was the volume yesterday? 1.08B shares making the 13th consecutive below average day…about 350 milliion below the six month average and 400 million below the 12-month. Also, Advance/Declines and Breadth weere very negative and new 52 week highs imploded to 87 (they had jumped to more than 500), while new lows inched up to 34. But volatility, although it surged yesterday up to the 200 day moving average settled only modestly higher…this is ridciulously complacent and dangerous…perhaps as early as today it will take its toll?  Here we go:

(Note there was not ONE mover of at least 1 index point up…those negative key reversals from two weeks ago may come into play now..also a lot of indices penetrated the 40/50 day m/a’s.)

Dow 30 -0.9% to 10332 – 11k didn’t hold. 6:1 declining. CVX -12 index points, INTC/JPM/UTX -6

Transports -1.8%!!! by 19:1.now below 40/50 day m/a. OSG -8

Utilities -1.3% by 15:0.  closed below 40/50 major support 375 and lowest since 11/6

S&P 500 -1.3% to 1094! ..by 4:1.

Nasdaq Composite -1.7%, 100 -1/6%. AAPL the big loser 8pts on Comp, on 100 AAPL/INTL -3; MFSFT -2

Russell 2000 -2.4%!!! by 11:1!!! plunged through 600…and 596-598 the 40/50 day closed 585!

NYSE Energy -2.5% by 35:1! CVX -16; XOM -15; SLB -13. Oil Services -3.5%!!!

AMEX Composite -1.1% by 3:1. BTI -6.5; IMO -5. REITS -2.5%

SOX -3.4% by 18:0!closed 310, 40/50 day 310, ugly! KLAC/SNDK -1

At least it won’t be boring today…

Isn’t it just like the market to go prove you right when you can be there to fully appreciate it?

Have a great weekend!

TB

Quick summary of yesterday’s markets. One day following large advances in ALL asset classes stocks struggled to hold the gains. Every index except the Dow (which had a high 4 points below Monday’s) had an INSIDE day (lower high, higher low than the prior day). This is NOT what you want to see after a breakout when the Dow rose above the 50% retrace of the decline. Not only that but the S&P 500 remains just above 1100 and just below 1121 – its 50% retracement. There were only three ‘real’ movers’ and they weren’t impressive – again – the buying appears to be ETF’s for liquidty purposes and to avoid headline risk. IF the rally is to continue it had better do so soon, and the lack of even average volume over the past nine sessions says there is no thrust.

TB saiz: “You lead by your deeds, not by your words.”
Isn't it rich?
Are we a pair?
Me here at last on the ground,
You in mid-air.
Send in the clowns.
 
Isn't it bliss? 
Don't you approve?
One who keeps tearing around,
One who can't move.
Where are the clowns?
Send in the clowns.

Isn't it rich?
Isn't it queer?
Losing my timing this late
In my career?
And where are the clowns?
Quick, send in the clowns.

Don’t bother – they’re here.

 - Words and music by Stephen Sondheim

…no need…they are on the set! But which set of fools? The ones calling for Dow 15000…or the ones calling for Dow 9000? Take your pick but before you cast your vote consider:

Those that tell you to simply close your eyes and buy were telling you that all the way down…and what did that get you…yet they are the brilliant ones now as we hover at just a 50% retracement of the selloff from the 2007 highs…isn’t that special?

Or do you listen to the other ‘clowns’ the ones the fools think are fools? You know the ones, Nouriel Roubini and Meridith Whitney among others. Sure they were right but even a broken clock is right twice a day. What do they know? Perma-bears! Bah! Humbug!

The best way to decide is to put your thinking cap on and ask which group has your interests at heart. Sadly, that does not include the new, improved (sic), Warren Buffett.

You have to consider your pain threshold and take yourself back to that not-so-distant point in time when your guts were being ripped out by the markets…think from last September to March. It was painful…but is it like a root canal that we forget as soon as the pain goes away? TB admires those who had the guts to buy from September to March, but they were betting the farm…applying fundamental values to companies when there were no fundamental values. Could it be that they were thinking: if the global financial system collapses it isn’t going to matter what you own so why not go for it?

There is a sense of intellect there (“if you can keep your head while all those about you are losing theirs”), but TB doubts it applies in a market that is up more than 60% in less than nine months – yet still down 50% and with horrible 2,3,5, year total returns.

But what is it about ridiculing people who were right? Has Nouriel Roubini lost his touch? Has Meredith Whitney forgotten all the principles of financial analysis that served her so well? Is Mark Faber just an old man who doesn’t get it anymore? Ah, how about Warren Buffett there is a sensible man. Yes, but is he sticking to his own values? Apparently not. He talks of morals but then invests with Goldman Sachs…because they are an honest group? No, because they are the biggest and best…so let me get this straight, Warren: how you make money and how you reward your shareholders doesn’t matter? Have you gone daft?

TB was furious when he was asked at the CNBC sponsored Town Hall at Columbia Business School if capitalism was broken. “No,“ he said, “…it is as it always is…sure there is greed but no more than usual. The worst thing that could happen is for government to do more regulation.”  Well excuse TB but in his 37 years experience he has never seen anything like this. Were derivatives to blame? “No, there was just a little too much leverage.” A little too much, Warren? 40:1…that isn’t leverage, that is priced to perfection…in an imperfect market. Why don’t you tell us what you really think Warren?

Can you say with a straight face…and a couple of your guffaws…that no one did anything wrong? That if the government studies what is wrong and tries to set new regulations that will destroy capitalism?

Perhaps TB is being too harsh on him…after all he doesn’t care about the short run…only what happens over the next twenty years or more. If Diogenes were seeking a long term investor his search would have been over. The ultimate long-term investor. OK, except for that foray into ForEx when he was a dollar bear…cost: $15 billion. How about his turnabout on derivatives (“financial weapons of mass destruction”), now he has learned to love them…even made a long-term bet on stock options…what a guy!

Tb would not be writing this were it not for a friend forwarding Arianna Huffington’s piece on this. A leader takes the opportunity to right the wrongs, Buffett had the opportunity and chose instead to give a rah-rah speech to young students, sounding more like Ivan Boesky in his famous “greed it good” speech to business school grads at Cal.

Perhaps he wanted to keep their outlook positive, but then why the very next evening did the air on Bloomberg with Charlie Rose and say exactly the same thing. Rose tried to fish it out of him but no such luck. Nobody did anything wrong…this is normal…the system does not need fixing – period! But wait…stop the presses this just in:

Goldman CEO Lloyd Blankfein just announced that mistakes were made and apologized for  their role in the crisis, “we participated in things that were clearly wrong and have reason to regret.” Why thank you for your candor. He went on to say they “are very concerned: about the criticism because “our reputation is very important to us.” (yes, as it was to Mustang Ranch owner Joe Conforte and bordello madam Sally Stanford). To atone for these ‘mistakes’  they will set up, in conjunction with…you’ll never guess…Warren Buffett, a plan to set up a fund to counsel and provide assistance to small businesses.

This from a man who last Sunday told the Times of London he was doing “God’s work.” TB would believe conviceted televangelist Jim Bakker before that. The true statement was that they are concerned about their reputation…after all they are a financial company – no…much more than that…THEY are a bank!…one that doesn’t lend or take deposits.

Here is how concerned they are about their reputation:

*they took the TARP money because it was thrust on them…they had no need for it so they repaid it this year…with dividends on the preferred…forget the savings from federal guarantees on $21 billion of long term debt…which not only did they save several percentage points of interest on, but underwrote it…sold it to hedge funds who immediately flipped it (in fairness, BofA and the others did this too…another Paulson failure to protect the taxpayer).

*one year after the problem they pay huge bonuses…spend enormous amounts lobbying and were the largest contributor to the Obama campaign with a smaller but significant amount to McCain – covering the bases.

*a NY Times article on the audit of the AIG bailout by Neil Borofsky faulted the NY Fed for giving away the store…paying 100 cents on the dollar on credit default swaps to dealers. One creditor, UBS, offered to take an undisclosed cut but quickly silenced by –Goldman Sachs (who was also advising the U.S. Treasury and Paulson was talking to Blankfein every day). Fearing a collapse of AIG they hedged their hedges with others and were thus paid double! Borofsky said that without the bailout their other hedges would likely have not paid off – read they were gone without the bailout. Then NY Fed President Tim Geithner was asked about the UBS offer but said he had no recollection of it but would trust the statements of Fed staffers. Who was the NY Fed Chairman at the time? Stephen Friedman, then and still a director of Goldman and a former partner. You may recall he bought 400,000 shares of GS stock during the crisis while the AIG situation and converting GS to bank status were being discussed. (unlike Martha Stewart, without admitting guilt, he resigned from the Fed but said these were just normal purchases – Martha went to jail…he remains a GS director…is this a great country or what?)

*did Goldman advise Paulson and Friedman influence the Fed to not bail out Lehman? We may never know but that was their biggest competitor….also did they influence the Obama administration on CIT? Interesting that CIT was main lender to small and medium sized businesses…and now Goldman is going to help small businesses?

*Friedman and Blankfein’s trophy wives were involved in a hissy-fit at a Hampton’s charity auction last summer as they didn’t feel they should have to wait in line with the other women when they arrived early. You lead by your deeds, not your words.

This is a company trying to re-image itself while at it’s heart it is still the same old Goldie. If all the above reminds you of the turn of the twentieth century robber baron’s you aren’t far from wrong…after amassing great wealth and continuing their deeds they created lasting legacies of buildings, colleges, etc. Rockefeller gave dimes to the poor.

As a rebuttal, former SEC Chairman Arthur Levitt, an advisor to Goldman, said that Blankfein is the real deal…he is sincere…and he trusts him implicitly. You go, Art! (Note: he is also senior advisor to the Carlyle Group, aka the ex-president’s club)

Sorry, Warren. You are either blind or going daft…the system is broke…and you know what else? It ain’t capitalism! No, it is more like an oligopoly…think about it! Sorry to burden you, dear reader, with this crap…and it is crap…as TB has said for months: the worst enemies of capitalism are it’s strongest advocates.

_______________________________________________________________________

TB apologizes for the tenor and length of today’s tirade, but there are so few willing to stick their necks out. Matt Tabibbi was first and was crucified…but others are now speaking out against Goldman (sadly none like Warren who need it for his businesses, not to mention his own holdings thru Berkshire).

TB will be out of the office until Tuesday so he may or may not post in the interim.

Last week TB credited “we will sell no wine before it’s time” to the Gallo brothers but an astute friend recalled where it came from: the now defunct Paul Masson winery with the late Orson Welles doing the speaking. Well done, General!

Hope you all have a good week and that the market gods smile down on you.

TB

Trader Bill thinks it is clear to anyone reading these missives that they are merely commentaries…as he sees it…and do not necessarily reflect the views of anyone other than his own. Information is gathered from sources he has found reliable, but no guarantees of accuracy are implied. These are merely observations of events in the marketplace offering in an attempt to offer a non-mainstream viewpoint. Hope you find it useful. Copyright TBD Capital LLC, © November 18, 2009.

Bloomberg Quote of the Day: “Facts are facts and will not disappear on account of your likes.” – Jawaharlal Nehru

“A consumer-based economy cannot thrive on savings.” – TB…but stocks???

…the point of no return was not, contrary to popular belief originated by Andrew Lloyd Weber in Phantom of the Opera, it was by the crews of the Pan Am Clippers leaving San Francisco for the Orient. The first one was halfway to Hawaii so they had enough fuel to return to the Golden Gate. It is critical for all transoceanic flights and important for markets too. We are now at the point where the market mavens must decide whether to take it higher…or lower. Just as with the Clippers it is not a decision taken lightly.

Yesterday, the Dow Industrials became the first U.S. stock index to close above the 50% line of the entire ugly sell-off. That level is 10334 while the high yesterday was 10434 and close was 10406. That along with the S&P 500 closing above 1100 (psychological) for the first time in the rally from the March lows hit TB’s radar screen.

It is the highest S&P close since October 2, 2008, but that is where the good news stops because just two days earlier it had broken down from 1200 and two days later it plunged thru 11000 to be followed in another three days by 1000 on its way to the March 6 lows.

We have yet to broach the 50% mark on the more important S&P 500 which is as readers know at 1121 and guess where the next resistance is? 1200? If you said that you would be wrong – it is 1228.74 (the 2nd Fibonacci retracement, 38.2% below the Oct. 11, 2007 record high, and that makes it interesting as that psychological 1200 could be a head fake. Just as there has been resistance at 1100 and 1121 there has been support at 1014, the 2^nd Fib retrace from the March 6 low…how symmetrical can you get?

The Nasdaq Composite closed at 2197 yesterday, it has been ranging between 50% (2063) and twice dipping below it, and this is the closest to the 2^nd Fib from the 10/31/07 high at 2251.84, while the 100, which peaked the same day at 2239, crossed above the 2^nd Fib Friday at 1773 and closed at 1807 yesterday. This is more positive as smaller stocks normally lead in recoveries, but the Russell 2000 Small Cap has been above the 50% line 599.53 (note proximity to psychological 600) twice (9/14-9/30 and 10/6-10/23) and closed at 602.87 yesterday.

But what about Dow Transports, Dow theorists ask? They peaked on May 19/2008, about six months after the other indices and like the Russell 2000 have been above the 50% line (3835 over the same two occasions, but it was the ‘timely’ announcement by Buffett of the Burlington Northern purchase that took us up since November 3. It closed at 4046.50, yesterday and that may be what has driven the latest wave in all the indices. But is it for the right reasons? …and why, like on at least two other occasions did we have big rallies in stocks on the same day as big up moves on bonds AND commodities, leaving just the dollar to fall. We are back to that insane positive correlation across all asset classes.

TB said last week that it is, or should be a major concern, that the only thing driving this rally is a weak dollar. Yesterday that was bolstered by Bernanke indicating it will be longer before the economy improves. Hurray! Buy stocks…buy bonds…buy gold…buy oil…wait a second…TB saw on Bloomberg a picture of Singapore with tanker after tanker sitting offshore…just waiting for the price of oil to rise, then race for port. We have the largest supply of oil sitting in ships in a decade…meanwhile gas prices are not falling and crude rallied $2.55 yesterday…is there a disconnect here? Not if you believe this is the dawning of a new global recovery…but does anyone really believe that?

Meanwhile there are huge net long positions in stocks, bonds, commodities options and futures, and a huge short in the dollar…is that the way you want to play it? Options expiration is on Friday too.

So if we can take out 1121 on the S&P it seems ordained that we will run further, perhaps till yearend or into 2010 – but will it end as it did this year on or about January 6^th?

Meanwhile, more and more of what TB thinks of as the cognizanti are commenting on the ‘jobless recovery.’ Yet, Joe Biden’s chief economic advisor, Jared Bernstein says there is no such thing…even as they produce bogus numbers on the number of jobs ‘created’ or ‘saved’ – what is this??? Meanwhile DOL data suggests they are blowing even the jobs saved out of proportion by threefold. Here is some other data TB heard:

*there are no jobs for those over 55 or those without a college degree (there is some hiring of college graduates but not that much)

*the average person who was laid off is taking a 40% pay cut on the new job

 *for the first time since 1954, the saving rate is increasing….nice if the rate is 5% but at 1% – or less??? Lock up a one year CD at less than 2%? Be serious!

To say the stock market climbs a wall of worry has to be the gross understatement of the century. It isn’t climbing it is pole-vaulting over all the bad news. Yesterday, was no exception…they were practically breathless on both CNBC and Bloomberg over Fritz Henderson’s declaration that GM would pay back the government if the trend continues. Talk about on the Fritz! This is beyond comprehension. First, they posted a $1.2 billion loss…quite an improvement…like jobless claims they are losing it at a slower rate. Look at these highlights:

*sees 4Q outflows on $2.5B gov’t loan repayments and $2.8B Delphi settlement (but they had $3.3B of adjusted operating cash flow…but sees negative cash flow in 2010?)

*also huge payments to underfunded pension plan but sees IPO by mid-2010

Now that is good news…what a reason for a rally and then to enhance it by Bernanke saying he won’t  tighten for an even longer period…in other words, the worse the economy is the more stocks can rally! Wonderful! The only thing that can stop us now is if the economy improves…right?

Remember the bulk of the earnings gains are still coming from cost cutting. If retail sales are so good, how come inventories are so low? We look at same store sales while the worst ones are being closed and a the same time the chains are losing competitors…of course you can sell more…more than you would have…but can you grow that way? Watch inventory levels for a clue!

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TB had several comments yesterday on ‘Sick’ and the status of healthcare. One friend said “every member of Congress should be forced to watch it.”

TB left out or didn’t make clear one major point: in all of the plans where the government isn’t funding it entirely, the insurers are not for profits. They can only make a profit on supplemental policies…such as a private room…which would satisfy the concerns of the wealthy. Also, TB believes that we do not have the personal responsibility of the other countries. We don’t take care of our health and thus diabetes is thriving, and even the French are better off than we are despite their love of smoking. Education on health is necessary and penalties in the form of rates would be an incentive. In many of the countries doctors are paid a premium on results…identifying potential problems like cholesterol and then treating it. What the GOP doesn’t seem to get is that preventative medicine is far cheaper than someone arriving at the emergency room with a stroke. What the Democrats don’t understand is that tort reform needs to go along with it. What both do understand is the money they receive from insurers and drug companies.

TB has a friend who retired from Kaiser. He agreed with TB that commercials for prescription drugs should be banned. They only cause people to think they have a problem and ask doctors for the prescription. Another friend, said that the reporter T.J. Reid wrote in his book that Flomax is grossly overprescribed since they started advertising it. Most men do not require it or could take a cheaper drug. It pays to advertise.

All the best,

TB

Trader Bill thinks it is clear to anyone reading these missives that they are merely commentaries…as he sees it…and do not necessarily reflect the views of anyone other than his own. Information is gathered from sources he has found reliable, but no guarantees of accuracy are implied. These are merely observations of events in the marketplace offering in an attempt to offer a non-mainstream viewpoint. Hope you find it useful. Copyright TBD Capital LLC, © November 17, 2009.

Bloomberg Quote of the Day: “Start every day with a smile and get it over with.”

– W.C. Fields

Just in time, I stocked up just in time
Before you came my stock was running low
I was lost, the losing dice were tossed
My bridges all were crossed, nowhere to go
Now you’re here, now I know just where I’m going
No more doubt of fear I’ve found my way
For a sale came just in time
you’ve found me just in time
And changed my balance sheet that lucky day
Just in time…

…with apologies to writers Jule Styne, Adolph Green, Betty Comden

…who came up “with just in time inventories?” Walmart! That set of a cycle of inventory reduction across all retailers and even some wholesalers…not to mention having the deliverymen stock the shelves. That morphed to ‘just in case’ (there is even a song with that name but it isn’t relevant here) inventories when they carried more inventory in hopes that sales were going to improve. Now all of America is looking to order ‘when the time is right…with inventory to sales down to 1.16x that isn’t much room for error.

But Walmart is so much smarter than that. They now have ‘just in time’ employees – all are required to have a computer so they can check the schedule the computer has prepared for them…optimization…who can work without hitting 19 hours…or earning overtime. Meanwhile they have run many of the small merchants out of town – you have selection, price, and a foreclosed home next door. Now if they could get ‘just in time’ customers they would have it down perfect.

But it is not just that they treat their employees badly that bothers them. They sit in a spot that can make or break a business…and that is exactly what they did to Huffy bicycles, Vlasic pickles…and worse…by encouraging start-ups but requiring them to produce so much that when they are told they have to cut the price they can’t survive…who cares? Walmart finds another supplier…most likely Chinese.

You don’t have to invest in Walmart…or in many areas even go there…there is Costco, a socially-responsible employer and citizen of the community. Go in one and look at the employees…young, smiling, friendly, helpful, and happy.  They have decent benefits and salaries. That in turn provides money for consumption…not like the other guys…who even say that their employees are their best customers…go figure! (TB does not own Costco, or Walmart anymore, in his clients but he is looking at COST – hard.)

So what? CIT’ problems hit some companies, reduced bank loans, or just trying to keep the balance sheet as pristine as possible under the conditions. After all if revenues aren’t growing you don’t need much inventory…perhaps 1:1? Ouch!

That reminds TB of the late Gil Nickle who founded Far Niente winery in Napa Valley. He loved to use the Gallo slogan: we will sell no wine before its time.” Then one year a friend noticed that the vintage came out a year earlier than they had been releasing before, so he asked him. Gil replied, “BofA say’s it’s time!” Once again the banks are driving business…this is especially clear to winemakers who were sought after by BofA and Wells Fargo but who are now concerned about their exposure. This is just one area of business that is being told what do and has little or no choice…especially with CIT gone. 

Some time ago TB noticed the Pimco Total Return Fund was trading at a premium of 50% to the Net Asset Value…at the same time Barron’s was chirping about it’s return but took them a month to notice the premium. For those of you not familiar, the NAV is the value of the portfolio while the price can be equal, at a premium, or at a discount to the NAV depending on investor (sic) demand. So using the above example suppose you were going to buy a car…a Prius…and you wanted it so badly that you were willing to pay 50% more than the list price. Prudent? …only in a world of fool’s and for those of you who want to make money…that can be a godsend…but not in the wacky of world of mutual funds…especially this time of year with capital gains distributions.

At the time discussed above…there was one other Pimco Fund – StockPLUS & Income Fund (PGP)trading at a premium in a see of discounts…some DEEP! Yesterday, TB happened to look again and while the fund is trading at a 60% premium (it peaked at 81% in mid-June – up from a discount of 22% last November!), it was beaten however by the Cornerstone Total Return Fund (CRF although CRP might be more appropriate) with a premium of 73% of NAV!

TB had never seen premiums like this until about 5 years ago when he was following Indian stocks (the country, not the gaming kind) and saw premiums of about 50% on the India Fund (IIF) and MS India Fund (IFN)…but there was a valid reason: hedge funds were not permitted to buy Indian stocks so they had to gain exposure by investing in funds – when the law was changed they plunged to a discount (but were bailed out by the growth of the Indian market). But one cannot explain the Pimco or Cornerstone situation.

A quick look at PGP shows a 12 month return of 60%…117% with dividends re-invested!  That is the change in price plus dividends paid. Year-to-date the returns are 83% and 116% – but less the premium increase from a 22% discount to a 60% premium or a combined 82% the ytd return would be flat! Also the 116% is largely a function of compounded reinvestment of dividends as the price rapidly rose. What are the holdings? Domestic and foreign government bonds – leveraged! The top 10 holdings ate 3596% (not a typo) of the total portfolio – sound like LTCM? …Gross better not stumble!

As for CRF…what are they doing that is so special? The portfolio IS nothing special…stocks like XOM, JNJ, etc. comprise 25% of the holdings! But the indicated DIVIDEND is 11.7% down from 16.6%. How can they do that? They have the right to pay dividends which may include income, capital gains OR a return of capital!!! The return for the last 12 months is 102% with dividends reinvested. But let’s go back to January when the fund was trading AT the NAV! Year-to-date the fund is up 62% – 102% with dividends reinvested! So if you take out the premium – 73%, the fund actually had a NEGATIVE return of 10%! The 102% return is a function of the rapid increase in the premium!

If you can shed any light on this phenomenon, let TB know…TB asked a rep of Pimco who didn’t have a clue…nor did he understand it as he only deals in their open-end funds.  TB checked Pimco’s funds but could not find a matching open-end fund but the Pimco Global Multi-Asset Funds is up 18.5%/22% for 12 months and a similar 19.7%/20% year-to-date. This is not to disparage Pimco merely the stupidiy of some investors in their CLOSED END funds.

But wait…it gets better! Whereas last year there was only Pimco, the latest Barron’s shows the following:

1. 26 funds trading at premiums >10% (10-20% -6; 21-30% -9; 31-40% -2; 41-50% -1; 51-60% -3; 60-70% -2; 70%+ -1)…there are NO muni funds in this group

2. 183 funds trade at a discount of >10% to the NAV. Only FIVE had negative returns. The returns ranged from +31.6% to -15.6% (You have to be careful here as some may have swung from a premium to neutral or a discount as the premium funds did). The biggest difference was one fund with a 17.5% discount but a +31.3% total return for 12 mos. Figure that one out.

This brings us to open-end funds where TB advises you check the following, in addition to the plans sponsor:

1. Holdings and how much the top 10 holdings are of the total portfolio

2. Rank among similar funds (Morningstar is a good source of this)

2. FEES and expenses. Fees plus front or back loads, are their 12(b)1 fees, etc.

If you are paying a full service broker don’t you do the homework…instead insist on knowing this from your broker…if he won’t or can’t do it get a new broker – fast!

RETAIL SALES just out for October and they aren’t pretty…of course this isn’t stopping the futures from advancing. They were +1.4% in October vs consensus +0.9%…what’s wrong with that you say? Because, ex-Autos they were up just 0.2% (some of those auto sales may be late from approvals for cash for clunkers program), vs consensus +0.4%. Ex-Gasoline they were +1.5% vs -2.6% in September. Worse yet, September was revised down to -2.3% from -1.5%! Merry Christmas! (Oh, and last week TB heard his first ‘jingle’ of the season…from Overstock.com…you know it’s all about the ‘O’…all white background…everyone in white but with black hair…truly lame!)

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TB watched a great documentary on Comcast On Demand (local PBS station KQED), from Frontline titled ‘Sick’ and investigated and reported by T.J. Reid, a veteran Washington Post reporter. He went to Japan, Taiwan, UK, Germany, and Switzerland. The results were stunning. Here were his conclusions:

UK – good regular care, and vastly improved wait times for surgery, total government

Japan – great care, but doctors don’t make much and although prices have been driven down for equipment by the government they have more MRI’s/CAT’s than the U.S.

Germany – rich can opt out of public plan – mistake…doctors make about $80k, services excellent

Taiwan – looked at the above and made their own – no opting out, etc. very good. Co-pay

Switzerland – barely passed a plan about 10 years ago…despite massive opposition from pharmaceutical companies who cried alligator tears….but continue to thrive. No out of pocket expenses. Note that 1/3 of drug companies revenues however come from U.S. Are you getting the picture???

Now look at us…politicians uh…politicizing it….Orin Hatch saying he won’t let the government kill grandma…drug companies spending billions to fight any change – until they were promised there would be no government buying of drugs…then they put up money for advertising! Oh and the Dems…a crucial piece…left out any tort reform…have to keep those trial lawyers happy.

The point is the solution is ahead of us…none of these countries spends as much on health care as we do…as a percentage of GDP…all have lower infant mortality rates and longer average lives. TB believes the problem here started when insurers like Blue Cross shifted from non-profit to for profit…worse was when hospitals did…which reduced donations from individuals to a trickle. This is what is wrong with America. Fix it or die. Health care reform is NOT ‘just in time’ it is sick that it is so far past it’s time. 700,000 people a year file for bankruptcy over medical expenses in the U.S. Elsewhere? NONE!

Thanks to our politicans, we preach fair trade…then levy excise taxes for political purposes. We talk about health care reform…and offer a band-aid…with no meaningful reform…and people die…

Have a great week!

TB

Trader Bill thinks it is clear to anyone reading these missives that they are merely commentaries…as he sees it…and do not necessarily reflect the views of anyone other than his own. Information is gathered from sources he has found reliable, but no guarantees of accuracy are implied. These are merely observations of events in the marketplace offering in an attempt to offer a non-mainstream viewpoint. Hope you find it useful. Copyright TBD Capital LLC, © November 16, 2009.

TB’s Quote of the Day: “As an economic measure, the light at the end of the tunnel had been turned off.” – Lawrence Block, writer in one of his short stories.

…last night CNBC hosted a town hall at the Columbia Business School featuring Warren Buffett and Bill Gates. Becky Quick did a good job as moderator and the students asked good questions and were very respectful. Glen Hubbard, Dean of the Business School was also present. TB would give a ‘B+’ to Gates and a ‘B’ to Buffett – and he had to work to get to that as he dodged any chance to point out how to correct the faults in capitalism that we just witnessed. But he got an ‘A’ for his advice to students that is right out of TB’s playbook.

The two were a good fit as Gates focused more on entrepreneurship while Buffett was more the conventional business model. Gates summarized his education (not mentioning that he dropped out of Harvard, perhaps to encourage them to stay after all he had a wealthy family to fund his adventures), while Buffett was old school, referring at least twenty times to his mentor, Benjamin Graham. Still, this was a lot better than paying a couple of million dollars on the EBay auction to have lunch with Buffett. He is a bit too folksy to TB which makes him seem a bit the buffoon but that is his attempt at humor. He is very self-deprecating and has to be admired by that. Still, it was apparent that these two men live in a different world from us…although both have committed to improving the lives of people around the world…through education and humanitarian efforts. Kudos!

The tone of the questions was interesting since the purpose was to be to discuss the economy and it was clear the students wanted to hear what went so desperately wrong. Buffett seemed to take the stand that this is capitalism which is definitely is not and that was his biggest failing…he saw nothing wrong…greed is normal and wasn’t excessive.

It was also clear that a high percentage of those asking the questions desired to be in the financial sector…mainly Wall Street. It is exciting but is it what we truly need of the best and brightest? No, we need engineers, leaders, people who want to help America be tops again in manufacturing and other industries thru innovation.

So here is what it all came down to…a question to Buffett near the end. What areas would be the best to achieve success? Here, the wise old man, excelled!

He gave three key pieces of advice that are so in line with TB’s thinking it’s scary:

1. His advice in letters to HIS CEO’s: run the company like it is your family’s and that you want it to thrive for a hundred years…do not look at the day, week, quarter or year but stay focused on the long run. This is the essence of capitalism and why it is a failure in it’s current state. People run companies as if they are their own…(TB adds with the exception of people like Rupert Murdoch and the egotistical Larry Ellison)…instead they are being run for the quarter and at the maximum the end of the CEO’s tenure.

2. Just because everyone else is doing it doesn’t mean you should be doing it. Again, in true capitalism this is more automatic…but when Wall Street went from partnerships to publicly held corporations and the partners took out THEIR money to be replaced by the shareholders (OPM). Now when someone goes heavy in derivatives the others all follow suit so as to not miss on any profits whether they understand the product or not. TB observed years ago that the best investment you can make is a ‘hot’ new product because the costs of implementing it are so high that the firm will not only support it but the others will start doing it until it’s value is completely neutralized and you had better be out by then.

3. Find something you are passionate about and hopefully someone to be a mentor who you are passionate about.  Buffett was blessed – learning under the tutelage of Benjamin Graham, then working for him and then having friends he could tap to start his company. If you had invested $1,000 with him then you would have $5.6 million today. He has beaten the S&P 500 in 34 of the last 38 years…unfortunately two of those years were when TB owned Berkshire stock. Hmmm would TB like for a mentor…Dick Fuld (Lehman CEO)?, Lloyd Blankfein (Goldman CEO)? Steve Schwarzman (Blackstone CEO? Ken Lewis (BofA CEO)?…anyone at Citibank??? Stephen Friedman (GS Chairman while Chairman of the NY Fed was buying Goldman stock – 400,000 shares while the Fed was considering giving them bank status!). Throw me a mentor – please! Actually, TB had a mentor, his first boss, F. Alden Damon, who treated him like a son, and gave him the tools to succeed…a good and honest man! They are out there!

Buffett was also gave some insight in the Burlington takeover. It goes to #1 above. He doesn’t care what they make tomorrow, next year, or even five years…but they will be a company that does well over the next twenty years. He is also buying cashflow as it appears his gameplan is to do so his successor has more to play with and more to stake his reputation on…hence the preferred in Goldman Sachs, General Electric, and others. TB would have liked to ask him about preferreds in this environment…something TB championed…sell the common due to the dividend cuts and low prospects for capital gains…did that successfully with GE too.

One last piece of advice TB wished Buffett had given: stick with your strategy if it is working…do not go into areas you don’t understand. He lost on an ‘emotional’ anti-dollar bet to the tune of $15 billion; also his insurance companies took huge hits on credit default swaps and other derivatives…which are now being written back up – partially – which resulted in trebling his earnings.

Gates also had an interesting take on which sectors will do in the future…alternative energy, utilities – you would be hard-pressed to find any strategist that is overweight utilities….most have them at or near zero. But his caveat is that is a long-run view. Many ideas will be tested and only a few will profit….like the VHS/Betamax battle that Sony lost…even though theirs was on the market first. They made the same mistake that Apple made so that others ganged up on them. Companies that were not ‘in’ the club formed their own group and combined took market share. Brilliant as he is though, Jobs made his restriction of source codes except to select programmers a success when they had such a low risk of hackers. Sony was not so lucky.

Have you noticed that Gold is spiking…hit a new high of $1,123.40 yesterday. While Meanwhile, as a class commodities are not going any where …in fact they are weak and now BOTH the CRB and Goldman Sachs indices are sitting on their 40 day moving averages. Even gold, which surged to $82.00 on October 21 is back down almost to its 40 day moving average and could break through today. While Gold is bucking the trend it is in a pattern we have seen lately (since it trades so heavily on technicals), since mid-July it has been hugging the 40 day…surged three times and on the prior two times came back to the 40 day (currently $1049). But the danger here is it has risen so fast that the moving averages are climbing rapidly…both the 40 and 50 day are rising more than $2 a day! Break the 40 and you go to the 50 day ($1040), and if that fails…$1,000-1,025…is next. That could be a good entry point. Keep in mind that several countries are considering increasing their gold reserves…what great investors they…remember when they were selling them off…now buying them back at inflated prices. Only India has acted thus far.

Russia, Brazil, and others…the U.S. is not among them for obvious reasons.

So with the high correlation of asset classes (0.7) if commodities crack, and bonds crack, can stocks be far behind? Note there are sizable net long positions in commodities, stocks, and even bonds…but the dollar has a huge net short position…contrarians heed.  

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It’s Friday the 13^th…and that could be ominous…or not.

TB’s friend, Graef Crystal (www.graefcrystal.com) has some good new reports out. One is on Billionaire CEO’s…an excellent piece…in general he says they are great value with the exception of Larry Ellison, Rupert Murdoch, and John Hess (Steve Jobs is number one, followed closely by Buffet, and Google’s Eric Schmidt…then Ballmer, and Bezos). Of course the worst ever was probably Citicorp’s Sandy Weill…years ago Crystal wrote unflatteringly of his greed. He ranks them by total pay…Ellison’s $60.9 million which is 233% above market using a regression formula, to Jobs $1.00, 100% below. The others listed above ran from 89% to 99% below market…kudos to them!

How about Abercrombie’s CEO (not a billionaire but perhaps a villionaire?), Michael Jeffries…and once again, CHAIRMAN AND CEO!!! who has a pay package of $79 billion. They just reported today with EPS of 30 cents beating lowered bar estimates of 20 cents, sales in line – but down 22%, and same-store sales down 22%. They are maintaining the 17.5 cent quarterly dividend.

Crystal has another article on Goldman: executives first, charity second (?), shareholders third. It might also amuse you…or sicken you that as TB said above, they no longer a partnership and totally playing with OPM. As a group, the 10 largest insider shareholders collectively own just 2.06% of outstanding shares (all employees own just 6.05%)…Buffett owns 8.46%. This sure doesn’t mesh with his investment ideals!

Don’t walk under any ladders…let black cats cross your path…and have a great weekend!      

TB

Trader Bill thinks it is clear to anyone reading these missives that they are merely commentaries…as he sees it…and do not necessarily reflect the views of anyone other than his own. Information is gathered from sources he has found reliable, but no guarantees of accuracy are implied. These are merely observations of events in the marketplace offering in an attempt to offer a non-mainstream viewpoint. Hope you find it useful. Copyright TBD Capital LLC, © November 13, 2009.

Bloomberg Quote of the Day: “The art of being wise is in the art of knowing what to overlook.” – William James, historian and brother of Henry James of ‘single tax’ fame

…today’s show boys and girls is presented by the letters U, V, W, and L. Quite appropriate for the 40^th anniversary of Sesame Street…right, Big Bird? Those of us with kids in the early days remember the show be ‘presented by the letter – .“ But the four letters above have much more significance for you and your wealth and well-being, both physical and mental. They are the possible shapes of the economy going forward. The bulls are strongly in favor of a deep ‘V’ while the bears see an elongated lazy ‘L’ with others falling in between. As the quote from Pimco’s Paul McCulley stated on Tuesday, how can the stock market be seeing s V-shaped recovery when the bond market is calling for a ‘U’? Dunno…

But not only does the bond market see a ‘U’ but it sees one with a long bottom. That may or may not be true but as David Rosenberg said on Tuesday…be careful what you wish for. The reason being that at the first sign of a true V or the right side of the U, the Fed will begin to remove liquidity rapidly, and that is not good for an already inflated stock market (not to mention bond market and commodities markets), the benefactors of ‘quantatative easing.’ Remember that the high positive correlation across all asset classes has been positive…and way too positive at 0.7 to be rational or sustainable except with excess liquidity injected. Rosenberg points out that the forward p/e of stocks is now 17.4% – or 17% above the historical average of 14x!  This does not mean you should sell but it does mean this is a horrible time to jump in and if you are in – all in – you had better have an exit strategy.

Of course all the big players have an exit strategy and it is the same for all of them – sell at the first sign of tightening…hence the sluggishness before last week’s FOMC meeting. We ignored the fact that the Fed is concerned about asset inflation and the aforementioned correlation of asset returns. But what is the big secret strategy that all the players share? Sell…sell everything…which at the very least might turn a ‘V’ into a ‘W’.

Let’s go through the essential alphabet and see what might happen:

U – where we go down stay down and then stage a strong recovery…this is what TB sees at best…because the consumer is busy paying down debt and saving or trying to. If this is the case, stocks are grossly overvalued (some say by 20%…think S&P 800), and bonds, while not cheap are not risky.

V – as Rosie said, be careful what you wish for…because a recovery of that magnitude would cause the Fed to withdraw liquidity rapidly to prevent asset inflation from spreading to general high inflation. The immediate reaction would be massive selling across all asset classes as investors try to become more liquid – fast. In that kind of sell-off you sell what you CAN sell. You know that feeling as we saw it from September to March…which coincidentally we just surpassed with nervous very slight new highs. A strategy that everyone shares is no longer a strategy but has morphed into a convention. Americans know how ridiculous and futile (national) conventions are in elections.

W – would you care for a double-dip? This would happen if we were mislead by the strength (relative) of the economy, the Fed began to drain liquidity and we plunged back into recession…not unheard of. Think what would happen to stocks if that happens? Particularly since most of the gain in rallies from lows comes in the first six months…we had that…or all of it.

L – and a lazy ‘L’ it would be…where the economy cannot gain traction…the government is buried in debt and we are in Keynes ‘liquidity trap’ Talk about bad for stocks…and other living, breathing things too.

All of these are definitely within the realm of possibility so you have to ask yourself what is the best strategy. TB ahs decided on one that does not require great brainpower: trailing stops or stop losses with tight limits below them. TB is now in the process of raising those limits as he feels we are closer and closer to the top.

Walmart earnings just out and they beat on earnings by three cents but had no change on next quarters earnings forecast. Worse it came from bottom line cost-cutting with revenues about at the lowered levels…but if you take out gasoline sales same-store sales were off 0.5% and for Sam’s Club up just 0.1%. The bright spot? Non-US sales were strong….what did you expect? Stock looks to open down…TB was stopped out on it

Of course one of the strongest areas has been the weakened financial stocks. As readers know TB has liked the ‘good’ bank preferreds for the income while their common stock  dividends have been slashed. But there are limits to his love for them…first they are $35 par…second they can be called some as early as 2011 so you have to be aware of that, and third if the common or even the broad stock market gets hit preferreds suffer too – often quite rapidly and sharply as they are much thinner markets.

On September 25, the US Bancorp 7.875% preferred spiked from another spike of $28 to $30 and then traded below $26 within a couple of days. So…TB put in a sell limit order at $28…didn’t even come close again…on Tuesday, just before the close he was stopped out on all orders at $28 – the high of the day and it closed at $27.41 yesterday. Never thought it would happen but am pleased as there is time for it to fall to $26 or even $25 before the next ex-dividend date, 12/26 (TB’s birthday so that would be a nice present).

He also had buy orders in on an emerging markets debt fund that jumped by 60 cents…he left his order in and last week was filled at his price.

Both of these examples show just how volatile this market is and argue for trailing stops!

Do what you think is right but make sure YOU think it is right…not your broker…TB has talked with several about the win-win of talking to clients about trailing stops – with limits! None has done anything on it…wonder what they are going to tell their clients if and when this market corrects violently…and not make a dime on it…but then doing nothing is worthy of nothing.

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For the second time in a month TB took the day off thinking ALL markets were closed (Columbus Day was the last one). This is due to the notifications on Schwab trading that point out that November 11 was a holiday so trade settlements would be a day later. Being a bond geek, TB just figured stocks would be closed too…he was wrong as he found out when he came home – early afternoon fortunately – and saw that the stock market was indeed open…but the question is WHY???

Does Wall Street think it is so important (after all Goldman Chairman, Lloyd Blankfein sees himself ‘doing God’s work’) that it closing one day to honor our veterans, especially those who gave their lives (and you can bet a lot of them would be very upset at what they gave their lives for) would be detrimental to the U.S. economy. All that for a day with volume of just 1.04B shares – the third lowest of the quarter. TB has no problem with staying open on Columbus Day…although it is a big deal in New York, but aren’t we a bit shallow to have a holiday with little or no meaning to most people? Particularly, not important to those Americans who have benefitted the most from it …don’t you agree Lloyd?…and Steve Schwarzman of Blackstone Group (BX -may his stock rot where it is), who painfully told Congress that if his earnings weren’t taxed at 15% there would be no private equity market…aw….Steve…we feel so bad for you…jerk that you are!

A friend sent letter from a friend of his saying the he just realized he had paid 59% of his income in taxes last year and was thinking about leaving the country or at least not working as hard. Assuming that he works in financial services, TB wrote back that IF he made $1 million and only got to keep $400,000 what else could he do that would earn him more? Or could he in fact work ‘less hard’ in an industry that demands 110% and there are ten guys standing behind you who would eagerly take your spot and pay 59% taxes.

Now don’t get TB wrong….maximum all in taxes should not exceed 50% so that the worker gets at least a 1:1 break. But all of this pales when $102,000 puts you in the top 10% of ALL wage earners and the average American makes around $45,000. What is worse, there are millions of people out there who actually makes something who don’t even make that…and there are doctors that don’t ‘net’ that (even with the ‘gifts’ from the pharmaceutical companies). Is what we in the financial sector do so all important that we should be paid humongous salaries only because it is a high volume industry? You could take just about anyone and make them a securities salesman or trader with the right background. You cannot create a doctor in that manner.

TB read yesterday that in only one area of production is the U.S. number one in the world. If you said financial markets you would partially correct…if you said derivatives you would be very close. But the answer isn’t either: it is venture capital. Isn’t that special? Not in one area of manufacturing are we number one…none…not even agriculture…but venture capital…what does that tell you about our priorities? Also, that despite the financial meltdown we just went thru the majority of Harvard Business School grads want to work on Wall Street…and probably most other B schools too. A pity. Making a career because it pays the most not because you get the most satisfaction from it…and TB would bet that most of those young people would like to get rich quick and retire early…unless they can make it to the top. Money isn’t everything…it isn’t even close. But doing something for your fellow man…as our veterans did is what is special. TB is a vet but he wasn’t killed, maimed, or even wounded so this day was not about him…it should have been about them and the markets should have been closed.

In his meanderings yesterday TB saw just one American flag out…his own.  

TB

Trader Bill thinks it is clear to anyone reading these missives that they are merely commentaries…as he sees it…and do not necessarily reflect the views of anyone other than his own. Information is gathered from sources he has found reliable, but no guarantees of accuracy are implied. These are merely observations of events in the marketplace offering in an attempt to offer a non-mainstream viewpoint. Hope you find it useful. Copyright TBD Capital LLC, © November 12, 2009.

Bloomberg Quote of the Day: “Defeat isn’t bitter, if you don’t swallow it.” – Clarence Darrow

TB Saiz: “The race is not always to the swift, nor the battle to the strong, but that’s the way to bet it.” …or as Aesop would say “Slow and steady wins the race.” …still it takes a lot of guts to bet on the tortoise….especially for Americans who expect instant gratification.

…but it didn’t smell like a rose or have any of its other characteristics. Well, it’s another day of TB doing God’s work…because by God if Lloyd Blankfein (wonder what the blank stands for…expletive?) is doing it TB must be doing much more because he isn’t being compensated for it. But it is money that it is all about…pure and simple, nothing more. Hello? If this is such a strong market why is there no IPO market? Huh? Because regardless of what Warren Buffett says, the credit crisis is not over although the crowd he associates with…and Blanfein…and Diman because none of their friends, save the ones that spent the weekend at Bernie’s, has felt any pain! What recession?

Let’s see 9 is an odd number so it must have been an ‘up’ day. Today is even so who knows. As we have seen on more than a few occasions lately all asset classes (the dollar is a currency not an asset class) were up: stocks were up, commodities were up, bonds were up…that isn’t how it is supposed to play…but we are in unstable times (unless you pay attention to volatility in which case you are ‘all in.’ But it is just that complacency that should have you worried…ok there goes perma-bear TB again. Well, he is in good company…not only some well-known investors but Da Fed! They are finding it hard to understand or wish that the correlation of all asset classes is 0.7 – it doesn’t get much better than that…or worse if you are concerned about asset inflation! Where is the balance? You know, bonds go up and stocks go down and never the twain shall meet.

But mind you, while inflation, be it cost-push, or demand-pull is out of the question. Cost-push? How can you have that with slack demand…even if it is commodities prices being driven higher so long as businesses are not willing to restock inventories; and why would they do that if they can’t raise prices and there is a scant increase in demand? But the key element of demand-pull inflation is rapidly rising wages and with the true unemployment rate 17.2%, employers can hire without raising wages as for most of us there is no place to ‘jump’ to…the Diman family and others in the financial sector  excepted and expected. The only ‘ism’ for me: nepotism!

TB wrote the above and then read the following Bloomberg top stories below:

*Tighter Bank Lending Standards Reinforce Fed’s Decision to Keep Rates Low

*European Finance Ministers Commit to Start Cutting Budget Deficits by 2011

Here is the time line…the Fed can (and must) keep rates low because the banks aren’t lending (except Buffett says they are…and those with money agree with him, not those who need to borrow it), most people TB talks to think by summer the Fed will tighten (the economy willing), and now the European finance ministers complete the tri-fecta. But there is one more step in the equation: IF the stock market is 6-9 months ahead of the economy…that may be a pipedream this time…then stocks should be fully priced now and begin selling off early next year or even sooner.

Y’see…if asset prices – in the investment classes – are rising – they divert money from other uses…savings (at 1%?) to frivolous things like stocks, bonds, and oh yes, gold. That has to worry the Fed lest we continue to drive prices higher and the financial sector resumes it’s wrongful place of 25% of the stock market.

But look at those earnings, you say?…while TB says look at those bottom line earnings while the top line stagnates. Remember they were from that blow-out quarter in GDP and thus productivity gains, which were in turn fueled by lay-off’s and lower hours worked. Productivity is static: in other words, it doesn’t matter how many widgets you actually make but the time and labor that went into making one widget. So while it looks good on the surface we are manufacturing 50 or 60 widgets when we were making 100…that does not translate to the bottom line…except when you first do it…businesses grow thru revenue not one time below the line cost savings…do you still think 22x earnings is the right level? If you love the S&P 500 you must because that is exactly where it is. Now ask your self if you are paying 22 times the earnings of something where is your break even, let alone where it becomes profitable.

The best of these was Berkshire Hathaway which is buying Burlington Northern for just 20 times earnings…and a PEG rate (p/e to long-term growth of 1.78x). That is like pushing on a string, and this for a railroad that faces enormous expenditures (rolling stock, track expansion, etc.). Not to mention assuming another $14 billion in debt meaning he is actually paying about 30x earnings.

But wait…Berkshire had blowout earnings…yep, that is exactly what they were! What is Berkshire? A conglomerate? No, because despite See’s Candy and all those other fun toys of Warren’s they are still a casualty insurer and a casualty insurer that has benefitted by no bad hurricanes or disasters this year…which offset lower investment gains…except mark-to- market on the huge stock market options plays and a revaluing of distressed financial assets like credit default swaps etc. Try spending that! …oops, forgot, we did that last time around!

After writing all this, TB read this by Pimco’s Paul McCulley in John Mauldin’t Outside the Box:

“How can it be that risk assets, notably common stocks, have been roaring ahead, presumably discounting a robust V-shaped economic recovery, while Treasury bonds are holding their own with a bull flattening bias, presumably rejecting the V-shaped hypothesis, instead discounting a U-shaped recovery as the base case, with a W-shaped outcome the dominant risk case?”

There is also a third possibility McCulley doesn’t mention: the ‘U’ may have a very broad bottom or could be a lazy ‘L’ or even saucer-shaped. This means the ‘V’ is highly optimistic…irrationally so?…some of the patterns look like nothing other than the Great Depression….but what they heck…borrow and buy – if you can get a loan!

There are no answers to the above…you have to decide…your financial future is at risk. But consider this: how was the stock market up 2% yesterday…REITS, a riskier broad asset class +5%…on volume of just 1.23B shares…an hour before the close it was 730M?

For the first time EVER…TB’s portfolios and the portfolios he manages for clients were not only up well over 1% but there were only 5 stocks in them that were down – none more than 10 cents! If that doesn’t sound like a feeding-frenzy TB doesn’t have a clue what would qualify as one….and not only on low volume but the money that is now coming out of money market funds…at a very slow pace…is going to bonds or European stocks – not U.S. So you make the call…does it pass the smell test? Roses or rotting garbage?

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TB believes that even Goldilocks would be hysterical watching how we ‘experts’ are investing for tomorrow in this wacky environment. There is no transparency…Madoff (although his methods were extreme) was no fluke as we now have Galleon, that not only roped in the usual suspects (Wall Street and hedgies), but executives of some of the major companies and even McKinsey & Co (there is a fraud investigation into Petrobras (PBR) and the CEO is scheduled to testify today following 22 execs and vendors that have already been subpoenaed…but since the investigation was announced the stock is up 15% per Bloomberg). Banks are paying record bonuses with OUR money…and worse they are lobbying against any significant financial reform with OUR money. Our politicians are bought and paid for or at least will be until the next elections as each party claims victory over the scum of the other…when we and they know it is the voters who are mad as hell.

At least three banks failed on an FDIC decision to shorten audits by 20% at the ‘safest’ banks…it turns out the investigators thought it was a cost-cutting move, rather than to do a thorough exam and then and only then if the bank was pristine cut future exams by 20%. Once again regulation failed us…and once again we have to stop the madness and go back to the sound financial policies that kept the banking system clean for 50 years, until Reagan decided Continental Illinois was too big to fail and that one case became policy eventually leading to the dismantling of Glass-Steagall. Wunderbar!

To those of you in the U.S. enjoy your day off tomorrow but remember why we have it off. That may be hard for most people who never served the country in any capacity let lone put their life on the line. A bit strong? TB is merely doing God’s work…right, Lloyd? You jerk! May that quote come back to haunt you and Goldman in spades!

TB

Trader Bill thinks it is clear to anyone reading these missives that they are merely commentaries…as he sees it…and do not necessarily reflect the views of anyone other than his own. Information is gathered from sources he has found reliable, but no guarantees of accuracy are implied. These are merely observations of events in the marketplace offering in an attempt to offer a non-mainstream viewpoint. Hope you find it useful. Copyright TBD Capital LLC, © November 10, 2009.

Bloomberg Quote of the Day: “It is better to know some of the questions, than all of the answers.” – James Thurber

TB’s Song of the Day:

Them that’s got shall get
Them that’s not shall lose
So the Bible said and it still is news
Mama may have, Papa may have
But God bless the child that’s got his own
That’s got his own

Yes, the strong gets more
While the weak ones fade
Empty pockets don’t ever make the grade
Mama may have, Papa may have
But God bless the child that’s got his own
That’s got his own

Money, you’ve got lots of friends
Crowding round the door
When you’re gone, spending ends
They don’t come no more
Rich relations give
Crust of bread and such
You can help yourself
But don’t take too much
Mama may have, Papa may have
But God bless the child that’s got his own
That’s got his own

-Lyrics by Billie Holiday, Music Arthur Herzog Jr.

…when is a recovery not a recovery? When it is a jobless one. That point was driven home by Friday’s payrolls report…especially the Household Survey where unemployment surged to 10.2%…unexplicably, 589,000 household jobs vaporized. Also, unexplicably in the Establishment Survey, there was again NO government hiring…zip! Also, how about the two lowered job losses in August and September resulting in 97k fewer layoffs? Does this make sense to you? Another caveat: IF as expected the House Bill extending benefits is passed by the Senate and signed into law…there will be another surge in continuing claims. So we are in a recovery but without inventory building and sans consumption growth except from weak levels…in the right direction but futile.

Actually, the payrolls were worse than they appeared. First, there was a seasonally adjusted loss of 190k jobs but hey…that’s better than 200k or more, right? Also we had revisions reducing job losses in August and September by 97k…so why not rally stocks?

Because…the unadjusted figures show a loss of 641k jobs!  Also, the seasonally adjusted numbers include 86k ‘phantom’ jobs creasted by the Birth/Death Census of Business which has been wrong for months as the benchmarks cannot handle a decline of this proportion. As for that horrible 10.2% if you add in discouraged workers (those who have not looked for a job in the past four weeks…how many doors can you knock on anyway?) and those working part-time but want to work full-time it is 17.5% unemployed. Figures lie and liars figure.

TB heard an interview with Jared Bernstein, Chief Economist and Economic Advisor to ‘Tail-Gunner Joe’ Biden (sorry that was Joe McCarthy but it fits). He said “there is no such thing as a jobless economy.” Hmmm….and HE is an economist that even Larry Kudlow admires. So somebody is funnin’ us only it ain’t funny! Do you feel better knowing that we are in a recovery even as unemployment increases? Do you really feel that companies are ‘just around the corner’ from rehiring…and increasing wages? Hell, they don’t even want to increase their inventories even though they are at just 1.19x sales, a low since records began being kept…in 1945?

Then there was the release of Consumer Credit for September which declined by $14.8 billion which was worse than consensus for a $10 billion decline. What’s wrong with this picture? For one thing people are saving again (or paying down debt which is not only the same but better given the usurious rates the banks are charging…and the way they raised them just ahead of Congress changing the law…but Congress outfoxed them despite all their bribes and made it retroactive!).

But wait TB you are forgetting about all those productivity gains…that is good for stocks! But is it? That was for Q3 and what did we have there? Cash for clunkers, new home buying, etc. (and that will continue now until the end of April and now expanded to include those who already own a home…can you figure the logic in that one?). If you lay off people at a faster rate than you slow production, ergo productivity increases and they were laying them off awfully fast…and lowering the workweek simultaneously. Boy would we have a laugh if the Frog’s (French) did that? No, they hire people and reduce the workweek.  But look where the 9.5% growth in productivity came from: Unit Labor Costs -5.2%, Hours Worked -5%; Non-Labor Costs +10%; Output +4%…but the one that boggles the mind is Compensation: +3.8% (while Real Compensation was up just 0.2%. Could that ‘compensation’ be management bonuses – for all that great productivity???

When I die let my ashes float down the green river
Let my soul roll on up to the Rochester Dam
I’ll be halfway to heaven with Paradise waitin’
Just 5 miles away from wherever I am
Ohhh… and daddy won’t ya take me back to Mulingburg County
Down by the green river where Paradise lay
He said I’m sorry my son but yer too late in askin’
Mr. Buffett’s coal train has hauled it away

- Dwight Yoakum, ‘Paradise

TB couldn’t let a song like that go to waste…no sir, not when Warren Buffett is making the biggest bet of his entire career on a railroad…and since Warren is doing it, he must know something so let’ all go buy up the rest of the railroads…but while he already owns 20% of BNI he is buying up the rest at a premium of 31% over market…that’s $34 billion in stock and cash plus assuming debt totaling $13.5 billion…$100 a share, 60% cash/40% BRK/B stock which is undergoing a 50-for-1 split to make it work (from a guy who hates stock splits…loves to collect dividends but hates to pay them…in fact doesn’t…you are either with him or again’ him. So wouldn’t you think everyone would be thrilled to peaches? Chomping on See’s Candy? Nope, they are suing him on a possible ‘winking’ board and that too little information was disclosed. Meanwhile, Barron’s says he must be looking way, way out in the future to pay 20 times expected earnings (the p/e to growth rate is a rich 1.77x),  for a railroad…well run as it may be…that has a lot of capital expenditures to get the profitability he seeks.

As for you true believers in Berkshire…they are still primarily a casualty insurer so because it was a mild hurricane season, etc. as well as insuring muni bond deals, their profits tripled….perhaps this is why he was so keen to buy something…hoarding cash makes shareholders (although he owns 33% of the ‘A’ shares so he can pretty much do as he pleases) scream for dividends. But where did most of the gain come from? Unrealized gains in DERIVATIVES including interest rate swaps as well as some tied to equities. Isn’t this the same guy who screamed that derivatives could only mean trouble??? Wonder what Ben Graham would think of today’s Warren Buffett? Moody’s has warned them that their Aaa rating may be in jeopardy…wasn’t AIG rated Aaa too??? I’m just sayin’…oh and Barron’s suggests that BRK/B may go into the S&P 500 to replace Burlington as that has been the history of mergers…buy the rumor…sell the news…on the day the funds are rebalancing…

Hallelujah! Buffett says the credit crisis ‘has abated’ – guess he hasn’t gone to a bank lately and as for Berkshire, like him it is ‘AAA’ (but that may end with the BNI buyout). As for you and I…as well as the small banks, it is no where near over, abated, etc.

Stocks are rallying overnight…who cares about jobs. Well we should be concerned because if people are increasing their savings rate, that isn’t going to help consumption

Here is a simple exercise….if you save $1 a year, compound quarterly at 10% at the end of five years you will have earned $2.02, but at 5% just 92 cents, and at 1% just 17 cents. That should go a long ways towards future consumption, right? Also, without the consumer…who shot his was last quarter by the way on a new car and home…those third quarter earnings may be more quirky than sustainable…but the estimates are already being raised as we speak…albeit from very low levels.

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Isn’t there one person in Washington who cares….really cares about the state of our government’s pledge to the ‘too big to fail banks’? Well it isn’t Obama who is refusing to acknowledge Paul Volcker’s recommendation to split up the big banks…and it isn’t your Congressman. But it is Elizabeth Warren who chairs the Congressional Oversight Panel on the financial bailout. She says the stimulus and the TARP money is peanuts…it is the $4.3 TRILLION in guarantees that were given to the banks under the TLGP program as well as the recently expired guarantees on money market funds. She is screaming for more transaparency…here is a link…listen to her calm 8 minute explanation of the trouble we are in http://cop.senate.gov/ …this from a woman who reminds one of  June Cleaver…looks can be deceiving.

Good ole Pfizer (PFE) gets another record fine for promoting their drugs for the wrong uses…

Lloyd Blankfein: front and center! He told the London Times over the weekend that as head of Goldman Sachs he is “doing God’s work.” Yessir…he is providing the capital for the rest of the world to grow…ain’t that special. Wonder what God thought of him buying all those credit default swaps on the mortgage paper they were dumping in 2007?

Jamie Dimon…your next. Doesn’t JPM have a policy on nepotism…especially when it is the CEO’s dad? He resigned from Merrill with his team of financial advisors and is headed for Bear Stearns as part of Dimon’s plan to get 1,000 of the ‘top, top, top’ brokers. How would you like to supervise the CEO’s (actually Chairman/President/CEO) dad….how do we know he is the best? How do we know his accounts will come with him? How do we know JPM didn’t overpay for Da-Da. This is nepotism at its worst!

Have a great day….you may need to relish it!

TB

Trader Bill thinks it is clear to anyone reading these missives that they are merely commentaries…as he sees it…and do not necessarily reflect the views of anyone other than his own. Information is gathered from sources he has found reliable, but no guarantees of accuracy are implied. These are merely observations of events in the marketplace offering in an attempt to offer a non-mainstream viewpoint. Hope you find it useful. Copyright TBD Capital LLC, © November 9, 2009.

TB’s Saiz: “the lunatics are not running the asylum…they have LEFT the asylum!”

From TB’s Unabridged Dictionary: Bulnerable – when one is so bullish that he is extremely subject to pain if he is wrong.

…the reaction to the Non-Farm Productivity (aka worker suffering report) was enough to make TB nauseous, especially coming less than 24 hours after the Fed saw no tightening for as far as the eye can see (ok, an exaggeration but you get the point as it is a moving target).

Let’s get past the productivity gains and recall the FOMC meeting yesterday…let’s think about the ongoing SEC investigations on insider information…the mixed earning reports…good but mostly due to cost-cutting…and let’s not forget today’s payrolls! (see overnight commentary for details)

The market rally yesterday was inexplicable unless one counts ‘tired of trying to take it down’ as a reason. Everything: advance/declines, breadth, new 52 week highs to lows, etc. was bullish…in fact most indices managed to close above their 50 day moving average but still below the 40 day…Transports excepted, which didn’t even push the high up to the 40 day. The one fly in the ointment was volume…lowest in nine sessions and first below average day in that period…this casts doubt on the seriousness of the rally.

So we are in a perfect setup for today’s Non-Farm Payrolls and Unemployment reports. There are three things that can happen…euphoria that it is better than expected providing a rally opportunity, surprise and thus a takedown, and lastly, a hybrid: run it up as they have on the last two payrolls Fridays – either to the 40 day or thru it, and then slam it and in that case we could plunge thru the 50 day at the same time. As we await the reports, European markets are about flat while Asia is in rally mode again. Globex futures are up very slightly which puts them near fair value to yesterday’s market close.

Commodities have been see-sawing with little change and yesterday, only Grains were able to stage a move of more than 2% and they were down…in fact all sectors were down but components were mixed. Natural Gas was the only winner in Energy but it has been beaten up for months, Crude was down after the highest close since Oct. 22, and RBOB Gasoline was down again. Gold set a record high on Nov. 4 of $1094.40 but has been going sideways ever since…open interest is starting to slip from the highs – records? But what is strange is that normally the pattern is for high open interest to occur after the peak on the selloffs…could this mean we are going higher?

Yesterday, TB said that JPMorgan should negate those interest rate swaps with the municipalities. It turns out that in an agreement with the SEC they will pay a $772 million fine: give Jefferson County, Alabama $50 million, pay a $25 million penalty and cancel $647 million in fees to unwind transactions to cancel the interest rate swaps. Now, what about the other municipalities across the U.S.???

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Citigroup’s former CEO John Reed, who led the bank for 14 years said, “I’m sorry” for the repeal of Glass-Steagall and is now calling for breaking up the bank(s) to separate the banking and investment divisions…that was gutsy on his part. Kudos!

It is about time for us…and mainly our bribed elected leaders to admit that capitalism, if it is not to self-destruct, must be saved from the key element that makes it work: greed! That can only be accomplished by sound regulation and transgressions must be punished efficiently and publicly with perp walks, etc. Yet it is the banking system…indeed the very banks that we bailed out that are resisting any change to regulation. That is because we have largely had in this country (and most others) banking laws of the bankers, by the bankers and for the bankers. Let’s get it done…get it done right…get it done fast! They have just proven they do not do it better or even know what they are doing.

As for compensation, a survey of CEO’s…obviously without names…had the majority saying the CEO is grossly overpaid. We know this in the financial sector but how about Abercrombie & Fitch who sales plummeted…the CEO earned $78 million last year – for what? They’re a damned retailer for God’s sake! But the problem goes back to the compensation of people in risk areas of financial companies and how CEO’s serving on other boards are supportive of higher compensation packages for the CEO. But the worst thing is they are blinded by their own wealth. They have no idea what these people do or the future liabilities the firms are incurring. Therefore, while TB sees no need to change the compensation of ‘most’ salesmen, traders, underwriters and investment bankers should have a large portion – proportionate to the future risk – given in the form of restricted stock. At least they will suffer with the shareholders for their greed or incompetence…or both? How many times in this column has TB stated that the problems in the financial sector began when the brokers went public? Under the partnership model, where the partners could only take out the income…which was the firms return on equity (when TB was at Merrill deferred compensation was paid at that rate and it worked well). But it requires oversight…supervision…and caring about the long term future of the firm.  

In a publicly held company that is at odds with the goals of the CEO who sees his main job as maximizing stock price during his tenure for his personal gain…the future – and the shareholders – be damned! He actually sees the shareholders as brethren as they too are short-term in sight…no longer buy and hold…except for the fools or those who haven’t awakened to the sad reality that nobody but them cares about the long run.

In contacting USBancorp, TB realized that this well-run bank is managed by Richard K. Davis who serves as Chairman, President AND CEO. There are also three Vice Chairmen, one the CEO, one head of Consumer Banking, and one another group head. There are according to Bloomberg 15 directors, who as a group own 0.08% of shares held which is below the 0.18% weak level for the industry – no skin in the game! One the Chairman Emeritus is even on the board of competitor Citibank…no other banks in their peer group allow that. TB likes this one: one is a coroner! Wonder what he brings to the table? How can a Chairman of the Board also be CEO and have as a primary concern the shareholders interests?

The shooting at Fort Hood, Texas was shocking. Particularly because he was a Major and his name suggests he is a Muslim…it remains to be seen whether he is but he was known to object to the wars in Iraq and Afghanistan…and disappointed that Obama hasn’t pulled out yet. But mainly he is a psychiatrist that has treated returning troops and was about to be deployed to Iraq after spending most of his career at Johns Hopkins. He was disturbed by post traumatic stress…perhaps his is a new disease: pre-traumatic stress? We will have to see how it plays out but at least he is still alive so we may learn something.    

Hope you all have a fun and relaxing weekend…we are all stressed out by now!

TB

Trader Bill thinks it is clear to anyone reading these missives that they are merely commentaries…as he sees it…and do not necessarily reflect the views of anyone other than his own. Information is gathered from sources he has found reliable, but no guarantees of accuracy are implied. These are merely observations of events in the marketplace offering in an attempt to offer a non-mainstream viewpoint. Hope you find it useful. Copyright TBD Capital LLC, © November 6, 2009.

TB’s Quote of the Day: “He is a good man and his intentions are good, but we are back to square one,” Arab League Ambassador Yahya Mahmassani, “His words have not led to actions so far.” …Same old same old…just like in the good old U.S. of A! TB

…not only could Buffett not do it alone, the entire Dow Transport index gave back 1.5% of its near 6% gain on Tuesday’s announcement that Berkshire is buying Burlington Norhtern (which has stalled at $97.10…well below the $100 bid. Overnight we learned that shareholders are suing both companies over a lack of information, and Davenport cut Burlington to ‘neutral.’ This follows yesterday’s announcement that S&P may cut Berkshire’s AAA rating (but they said it would be no more than two notches).

But the worst thing is that even at yesterday’s highs Transports could not get back up to their 50 day moving average and are way below the 40 day. Since this worst performing index (which in itself is a bad omen if you believe in Dow Theory or even that if the economy is strong than goods need to be shipped in higher volumes), became the BEST performing index for a day….what does this say about the rest of the stock market (asked rhetorically)? Take heart…the other indices are in worse shape! Oops!

The reason for today’s quote is that we are Americans…and by God or Allah while we can criticize our government for it’s corruption, inaction, clumsiness…nobody else has the right to do so…isn’t it scary that others can listen to Obama’s speeches and not stay invigorated for even four years?…or one? What is getting done in D.C. At least when Dubya was in charge things were happening…wars were starting …OK it would be hard to start another one now…what about Iran or Korea though? Likely candidates.

But what’s next…criticize Wall Street…the re-declared financial capital of the world? Just in: 7 more hedge fund personalities have been arrested in the Galleon Case – let’s just hope that that is all they find… we don’t need our faith in U.S. corporations being shaken any more than it already is!

Speaking of which, the lily-white JPMorgan (does Jamie Dimon wear white shoes?), according to the SEC, bought Rolex watches for Jefferson County Alabama officials to remain the ‘chief bond banker’, and other gifts totaling $8 million! Mr. Dimon would say those involved were fired – eventually when Jeff Co was on the verge of bankruptcy which it still is…but it these were illegal activities should JPM still be collecting the bounty from these acts? No…HELL NO! Nor should any of the other banks…too bad Lehman and Bear aren’t gone so they could share in the pain. Remember this was more than a decade after the SEC adopted strict pay- play rules…which should have eliminated them.

But Dimon is a CEO and CEO’s sometimes (?) do dumb things…take Charles Schwab…they sold funds that were ‘the same as money market funds’ to their clients. They know it…the whole world knows it…yet they are letting it go to a class action suit rather than simply pay…and pay quickly (it should have been done a year ago…their good clients who were screwed by their misstatements (true, at the time there wasn’t an expert out there that didn’t believe those adjustable rate securities were ‘safe’, including TB who had used them for more than a decade), but instead Schwab is paying on a ‘case by case’ basis…can you figure the logic? This on a company that prides itself on it’s honesty and care for the client…which in other areas TB believes they do. It is all about doing the right thing…even if it hurts in the short run…got it Chuck and Jamie???

TB’s friend, Mark Gilbert wrote a Bloomberg article today “Valuing Bonds, Dollar is Crazy in World Gone Mad.” He points to the 3.5% yield on the 10 year Treasury Note when just two days ago the Treasury announced it was going to borrow a ‘net’ $276 Billion in the fourth quarter AND another $478 billion in the first quarter of next year. The point is there is no shortage of supply and the Chinese ‘must shop until they drop’ as TB sees it and if they stop shopping bond prices will drop and with it the value of their own investments…a vicious circle that only Machiavelli could have seen as virtuous!

Mark goes on to say that investors who own European corporate bonds have earned more than 15% total returns this year and subordinated debt is up 26%…high yield? Up 67%. Yet, as TB has been saying (and TB carries with him 37 years of bond experience), how can you buy a bond when it could be down 2% the next day…or even the same day. The volatility in bonds is worse than in stocks! Thanks to Mark for putting this in but TB had also noticed the impetus for Mark’s article: Moody’s is predicting speculative bond yields to peak at 10.9% this year…then decline to 6% next year which he feels is too optimistic.

Lastly, TB heard Niall Ferguson on Bloomberg yesterday who is not only concerned but bearish on the outlook for capitalism and blames much of it on ‘too big to fail.’ Ferguson, a Harvard professor, but don’t hold that against him…says that if a company has more than 100,000 employees, it is more prone to failure than smaller companies. Yet, the Fed is still encouraging size…in fact they stupidly wanted to merge Wachovia with Citigroup! But what do you expect from a Fed Chairman who idolized his ex-bosses low interest rate mentality, and a Treasury Secretary and former NY Fed President, was simply too close to the bankers…part of his job there…NOT as Treasury Secretary!

In closing, TB is now bullish on stocks – NOT!!! Despite this:

Non-Farm Productivity rose by 9.5% in Q3 (note that is for the quarter!) vs. consensus +6.5%, while Labor Costs FELL by 5.2% vs. consensus -4%. Astounding, the talking head say!  But are they? Productivity is up 4.3% over the past year…nolt that’s good BUT look at this: Output, which was up 4% in the Quarter yet off 3.5% over the past year was a positive. But Compensation rose 3.8% (Real Compensation, adjusted for inflation was just up 0.2%), and is now +0.5% over the past year… but how can this be? Was it Goldie’s bonuses? Who knows…but Hours Worked FELL 5% and as we know are at the lowest level in decades and down 7.5% over the past year was the boost while Labor Costs  plunged 5.2% following -6.1% and -5% and are now down 3.6% over the past year. If you believe this crap…and surely there are those out there…who do…good luck!

Oh, Dow Futures which were up ONE point when TB wrote earlier jumped and now the market is open: Dow +79; S&P 500 +6; Nasdaq +17…have we all forgotten that 70%+ of our economy is built on CONSUMPTION???

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If you have heard Ben Stein lately, you know he is optimistic. Yesterday, Paul Krugman found this clipping from 1982 that was prompted by reading an article by David Leonhardt that said ‘we are in a liquidity trip now, which means it is harder for the Fed to turn things around’ (Volcker was Fed Chairman then…thankfully).  So Krugman checked back in the Times files and found an earlier 1982 article titled “A scenario for a depression,’ which warned that we might be in a liquidity trap with no way out. The author: the same Ben Stein….makes you want to get on the horn to your broker right, now doesn’t it? Buy, buy, buy….buy until you drop?…till stocks drop?

Have a good day and don’t let TB or anyone else do your thinking for you – ever!

TB

Trader Bill thinks it is clear to anyone reading these missives that they are merely commentaries…as he sees it…and do not necessarily reflect the views of anyone other than his own. Information is gathered from sources he has found reliable, but no guarantees of accuracy are implied. These are merely observations of events in the marketplace offering in an attempt to offer a non-mainstream viewpoint. Hope you find it useful. Copyright TBD Capital LLC, © November 5, 2009.